African Journal of Business Management Vol. 6(13), pp. 4717-4727, 4 April, 2012 Available online at http://www.academicjournals.org/AJBM DOI: 10.5897/AJBM11.2016 ISSN 1993-8233 ©2012 Academic Journals
Full Length Research Paper
Total quality management, entrepreneurial orientation and organizational performance: The role of organizational culture Abdullah Kaid Al-Swidi* and Rosli Mahmood College of Business, Othman Yeop Abdullah (OYA) Graduate School of Business, Universiti Utara Malaysia, Sintok, Kedah, Malaysia. Accepted 28 November, 2011
The new and challenging structure of the global business environment has been forcing organizations, including banks, to adopt innovative strategies to seek a better performance and sustain their competitive advantage. However, it has been widely emphasized in the literature that quality alone in the current transforming economies cannot attract the educated and technology-driven customer demands. Therefore, highly competitive leading organizations have to integrate various innovative strategies to attract and maintain their critical customers. Moreover, strategies should be looked at as means towards an end and they must be aligned with other organizational variables. Regarding the Yemeni banking system, it has been reported to have been suffering from many problems as a result of the lack of efficiency and customer and market focus. Furthermore, Yemeni banks lack the entrepreneurial capabilities to seize and take the advantage of the available business opportunities. This paper, however, tried to examine to what extent the relationship between total quality management (TQM), entrepreneurial orientation (EO) and performance is affected by the organizational culture by using the data collected from the Yemeni banking industry. The findings of this study supported the premises of the contingency and organizational change theories by confirming the significant role of organizational culture. Key words: TQM practices, entrepreneurial orientation (EO), organizational culture (OC), the Yemeni banking system, organizational performance of a bank. INTRODUCTION Total quality management (TQM) and entrepreneurial orientation (EO) have been among the most popular universal strategies for survival and growth of many organizations in the current competitive environment (El Shenawy et al., 2007; Escrig-Tena, 2004; Kaynak, 2003; Reed et al., 2000; Sila and Ebrahimpour, 2002; Zahra, 1991; Zahra et al., 1999). Because of their strategic importance, TQM and EO have been attracting a growing attention by both academics and practitioners during the last few decades.
*Corresponding author. E-mail:
[email protected]. Tel: (006) 012 466 2754.
Empirically, many studies supported the significant impact of TQM (Arawati, 2005; Li et al., 2003; Yasin et al., 2004) and EO (Barrett and Weinstein, 1998; Covin and Miles, 1999; Covin and Slevin, 1991; Lumpkin and Dess, 1996; Zahra et al., 1999; Zahra and Covin, 1995) on the organizational performance. Unfortunately, some other studies argued that not all TQM initiatives were successful (Samson and Terziovski, 1999; SanchezRodriguez and Martinez-Lorente, 2004; Sohal and Terziovski, 2000) while others questioned the appropriateness of entrepreneurial orientation strategy for organizational effectiveness (Li et al., 2009; Wiklund and Shepherd, 2005). This experience of unsuccessful organizational strategy implementation worldwide was not surprising. Kaplan and
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Norton (2000) reported that 70 to 90% of organizations experienced failure organizational strategic implementation worldwide. To explain the unsuccessful organizational strategy, the literature of contingency theory and organizational change theory proposed that the misfit or mismatch between the strategy and the organizational culture to be one of the main reasons for failure. It was commonly argued that, unless organizational culture fits the intended strategy, the reflected results will not be satisfactory. To resolve the inconsistency of the findings regarding the relationship between TQM, EO and organizational performance, many researchers suggested that many influential organizational variables should be investigated. Ehigie and McAndrew (2005) and Douglas and Judge (2001) suggested that future research should pay more attention to some organizational variables to better examine TQM and organizational performance relationship. Similarly, Wiklund and Shepherd (2005) suggested that other variables should be incorporated in the EO and organizational performance relationship to resolve the inconclusive results. As the organizational culture variables is one of the main factors to explain the organizational outcomes (Prajogo and McDermott, 2005), it has been attracting an increasing scholar attention to explain the organizational strategy outcomes in the light of contingent and organizational change theories. In other words, the existing literature on the role of organizational culture (OC) in organizational strategy implementation is not fully explored and at its infancy phases (Prajogo and Sohal, 2001). Given these facts, the role of organizational culture (OC) on the strategy implementation is still calling for more empirical studies to be conducted. Thus, this study was an attempt to bridge this gap in the literature. This paper aims to examine the influential role of the organizational culture (OC) on the relationship between total quality management (TQM) practices, entrepreneurial orientation (EO) and the organizational performance of banks in the Yemeni context. In order to achieve the aforementioned objectives, the data were collected from the Yemeni banking system through a selfadministered questionnaire. Our findings provide insights into how far the organizational culture (OC) can be the catalyst of any successful quality management and entrepreneurial initiative. In addition, we emphasized the importance of bank branches to the overall success of any quality initiative at the corporate bank level. However, the limitations of this research provide some future research directions that can be deeply investigated to get valid and reliable results. TQM practices and organizational performance In the literature of quality management, although there has been a consensus among the literature about the
universal importance of TQM practices, there is no hard and fast definition of the TQM construct (Reed et al., 1995). However, the majority of the proposed definitions are built on the fact that TQM covers the entire organization. For example, Flynn et al. (1994) defined TQM as the integrated approach that employs and sustain a continuous improvement approach that results in high quality outcomes to meet the customers’ demand go beyond their expectations. Kumar et al. (2009) defined the TQM as the holistic management philosophy that integrates all the organizational activities to satisfy customers’ needs and meet their expectations culminating in achieving overall organizational objectives. Due to its strategic importance, TQM has been extensively studied as a critical determinant of a better performance and competitive advantage for manufacturing and service organizations as well (Douglas and Judge, 2001). In the literature of quality management, many researchers examined the effect of TQM on the performance of different types of organizations such as manufacturing, service, SMEs, higher education, and public service sector organizations (Arawati, 2005; Al-Swidi and Mahmood, 2011; Das et al., 2008; Sohal and Terziovski, 2000; Saravanan and Rao, 2006; Yasin et al., 2004; Demirbag et al., 2007; Mohd Nizam and Tannock, 2005; Sohail and Hoong, 2003; Cruickshank, 2003; Dahar et al., 2010; Nor Hazilah, 2004). As revealed by the literature of quality management, while the majority of the research conducted regarding the TQM and performance was on manufacturing organizations (Douglas and Judge, 2001; Kaynak, 2003; Lakhal et al., 2005; Sila and Ebrahimpour, 2005), it has been growing in popularity in other business settings. Fening et al. (2008), Bayati and Taghavi (2007), Lewis et al. (2005, 2006a, b), Temtime and Solomon (2002), and Rahman (2001a, b) extended their research to examine the TQM and SMEs’ performance. Notwithstanding the limited research work examining the impact of TQM on SMEs’ performance, it has been emphasized that TQM strategy can enhance SMEs’ market-focus, human resource management practices, and competitive advantage creation (Salaheldin, 2009; Demirbag et al., 2006; Rahman, 2001). It was also argued by El Shenawy et al. (2007) and Escrig-Tena (2004) that the unique characters of TQM can not only generate a better performance for an organization but also allow for a competitive advantage creation. The importance of TQM strategy can be explained from two perspectives. The first perspective is that TQM strategy can help in establishing an effective direct contact with the customers and thus resulting in satisfied and hence loyal customers. The second perspective is the ability of TQM to help in nurturing employees’ problem-solving capabilities, continuous improvement, and empowered and then committed employees (Wruck and Jensen, 1994). Essentially, TQM
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strategy with its combination of soft and hard critical factors can be flexible and able to withstand in the face of many challenges. As previously discussed, the emphasis of TQM strategy on the human resource management factor can ensure that the employees will be continuously trained and empowered to enhance their involvement and consequently to gain their commitment. The culmination of that will be the effective socialization network and knowledge sharing environment that results in sustained competitive advantage (Al-Swidi and Mahmood, 2011c; El Shenawy et al., 2007). In the light of the previous arguments, and other supporting arguments, the following hypothesis is proposed: H1: TQM practices positively impact the organizational performance in banks. Entrepreneurial performance
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As argued by George and Marino (2011) and further discussed by Dess et al. (2011), despite the popularity and the scholarly attention given to the entrepreneurial orientation (EO) construct, there has been no clear, agreed-upon definition for the construct and there has been a continuous debate in the literature regarding the nature of the construct and its dimensionality (Knight, 1997; Lumpkin and Dess, 1996; Zahra, 1993). In addition to that, there has been no agreement regarding the interdependence of its dimensions (Dess et al., 1999; Lumpkin and Dess, 1996), and how this construct theoretically related to its anticedent and consequence constructs. EO construct have gained acceptance due to development of Covin and Slevin (1989, 1990) on the Miller and Khandwala’s (1977) and Miller’s (1983) work. That is, the concept of entrepreneurial firm was established. This conceptualization of EO and the associated measurement have been used in 200 studies in a variety of fields ranging from management, to marketing (Luo et al., 2005) to health care (Davis et al., 2006). Remarkably, notwithstanding the wide acceptance of the EO construct in the field, there has been a lack of consistency in defining it (George and Marino, 2011). For example, while Miller’s (1983) definition of the construct applied to a wide of organizational processes; other authors (Lumpkin and Dess, 1996) constrained the construct to new entry. More specifically, Lumpkin and Dess (1996) defined the entrepreneurial orientation (EO) as the process and decision-making activities that lead to new businesses or developments. Similarly, Covin et al. (2006) defines EO to be the construct representing the organizational entrepreneurial abilities. From another perspective, Miller and Friesen (1982) named the differentiation of organization over its rivals and superior
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growth as the clear and immediate results of EO. As a result of the massive technological revolution, the business environment has become very challenging and all the methods used earlier to solve customers’ problems are no longer effective (Ramachandran et al., 2006). This challenging business environment with stiff competition implies that becoming entrepreneurial is a necessity to the survival (Dess et al., 1999). As a response to the increasing importance of the EO concept, there has been an increasing attention given by the literature to the entrepreneurial orientation impact of the organizational performance. This attention is justified by the fact that fostering innovation, proactiveness, and tolerating risk might help organizations to lead the market and attract and retain loyal and excited customers (Zahra, 1991; Zahra et al., 1999). Banks, like other types of organizations, have been challenged by their ability to institutionalize entrepreneurship and to encourage entrepreneurial behaviors among all their employees towards exploring and exploiting the available business opportunities (Ramachandran et al., 2006). A comprehensive review of the entrepreneurship literature showed that EO has been operationalized through five dimensions namely: innovativeness; proactiveness; risk taking; autonomy; and competitive aggressiveness. However, the majority of the EO relevant studies focused only on innovativeness, proactiveness, and risk-taking as the dominant dimensions to explain the variance in the EO construct (George and Marino, 2011; Morris and Sexton, 1996; Zahra, 1993). Moreover, it has been widely argued in the entrepreneurship literature that innovativeness of the organization, its proactiveness nature, and its readiness to tolerate risks, as EO dimensions, are very crucial factors for organizational competitiveness (Al-Swidi and Mahmood, 2011b, c). The need for EO strategy is becoming more serious as it can be seen as one of the main capabilities for organizations to cope with various challenges in the ever-changing, turbulent, and uncertain business environment (Barrett and Weinstein, 1998; Covin and Miles, 1999; Covin and Slevin, 1991; Lumpkin and Dess, 1996; Zahra et al., 1999; Zahra and Covin, 1995). Despite the fact that the majority of the literature concerning the effect of EO on organizational performance confirmed the positive effect, some studies reported opposite results (Li et al., 2009; Wiklund and Shepherd, 2005). More importantly, it has also been pointed out by some researchers (Keh et al., 2007) that organizations with high level of entrepreneurial capabilities have the ability to explore and exploit the available business opportunities and are more likely to create the competitive advantage compared with their rivals. For banks, the core business is based on satisfying the customers by offering high quality and innovative products and services. This arguement implies that EO
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as the pillar of innovative environment leads to sustainable growth of an organization (Miller, 1983; Lumpkin and Dess, 1996) and wealth generation (Drucker, 1985). Moreover, it has also been confirmed by many researchers (Al-Swidi and Mahmood, 2011b; Ramachandran, 2003) that entrepreneurial orientation (EO) adds value to organizations due to its emphasis on identifying the causes of customers’ dissatisfaction to develop proper solutions that eliminate them. Additionally, it has been confirmed that entrepreneurial orientation (EO) can improve the competitive strategic position of an organization in the marketplace by taking the advantage of the available business opportunities (Lumpkin and Dess, 1996). More importantly, entrepreneurial orientation (EO) is critical for the overall performance since it implies the adoption of a combination of new other strategies to be able to get the full advantage of the available business opportunities (Dess et al., 1999; Hamel and Prahalad, 1989). Based on the previous arguments and other supporting ones, the following hypothesis is to be empirically tested: H2: EO has a significant impact on the organizational performance of banks. Organizational culture (OC) In the light of the resource-based view (RBV) theory, organizational culture can be considered as a unique and inimitable capability that contributes to the competitive advantage creation of an organization (Barney, 1986, 1991; Hall, 1993; Peteraf, 1993; Wernerfelt, 1984). Therefore, according to the contingency theory premises, prominent leaders should be able to shape their organizational cultures to fit the effective intended strategies (Kuratko and Welsch, 2004). Notwithstanding the growing attention given to organizational culture (OC) construct, there has been no universal agreed upon definition for the construct (Lewis, 2002). Apparently, there has been almost consensus among most of the proposed definitions of OC that it represents the shared system of values, beliefs, and attitudes that are common among the organizational individuals and influence their perceptions and judgments (Deal, 1986; Deshpande and Webster, 1989; Kilman et al., 1985; Mckinnon et al., 2003; O’Reilly and Chatman, 1996; Schein, 1990; Uttal, 1983). In the literature of strategic management, the role of organizational culture (OC) has been widely acknowledged as critical factor to explain how organizations work and how strategies could be effective (Prajogo and Sohal, 2001). In addition to that, the uniqueness of OC, its inimitability, and rareness characterized it as critical factor of a sustainable competitive advantage (Kilman et al., 1985; Ouchi, 1985; Owens, 1987; Schein, 1990; Zheng et al., 2010). As it has been indicated earlier, not all the TQM and
EO initiatives were successful and fruitful. In other words, the findings regarding the TQM (Sila and Ebrahimpour, 2002), EO (Li et al., 2009; Wiklund and Shepherd, 2005) and organizational performance relationships were found to be inconclusive. To explain these discrepancies in the findings other variables were suggested to be incorporated in the TQM, EO and organizational performance relationships. Ehigie and McAndrew (2005), and Douglas and Judge (2001) suggested that future research concerning the impact of TQM should pay more attention to some organizational variables such as organizational culture (OC). Due to the same reasoning, Wiklund and Shepherd (2005) suggested that other variables should be incorporated in the EO and organizational performance relationship to resolve the inconclusive results. In conclusion, the importance of OC in TQM implementation has been acknowledged and empirically supported. To provide potential reasons for TQM initiative failure, Brah and Lim (2005) argued that the lack of supportive organizational culture affects the successful implementation of TQM strategy as a change strategy towards improving the overall organizational performance. On the other hand, successful EO strategy requires that the entrepreneurial capabilities of an organization should be part of its culture so that all the employees will participate effectively towards a better performance. In other words, the various challenges stemmed from the complex business environment might have been impossible to overcome unless the organization successfully created the entrepreneurial culture to seize the survival and growth opportunities (Dess et al., 1999). Therefore, in the light of these arguments, the following two hypotheses can be postulated: H3: Organizational culture (OC) moderates the relationship between TQM practices and organizational performance of banks. H4: Organizational culture (OC) moderates the relationship between EO and organizational performance of banks. Figure 1 depicts the research framework. RESEARCH METHODS Sample and data collection The data for this study were collected from the bank branches in the Yemeni banking industry. However, the branches of a bank are the connecting points between the bank and its customers, the overall performance of the bank as a whole is based on the operations of the network of bank branches (Das et al., 2009). In addition to that, some other researchers (Al-Swidi and Mahmood, 2011a; Dwairi, 2004) suggested that bank branches can be deemed as the level of strategic execution of the corporate bank and the best level to describe the level and consequences of strategies’ implementation.
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R Total quality management Organizational performance Entrepreneurial orientation Organizational cultre culture Figure 1. Research framework.
Initially, the original version of the questionnaire was in English. Since the respondents of this study were the branch managers of the banks in Yemen, the questionnaire was translated to the Arabic language. This was done by following the recommendations of Brislin (1970, 1986). More specifically, the questionnaire was first translated into Arabic language by a bilingual individual without telling him the objective of study. Next, another bilingual individual was asked to back translate the Arabic version into English without having access to the original version. Finally, the two English versions of the questionnaires were carefully compared to detect the minor changes and the modifications were made accordingly. In other words, this process ensured the conceptual equivalence of the two original English versions. For the purpose of this study, self-administered survey questionnaire was distributed to the 287 bank branches representing the whole population to ensure a good representative sample (Zikmund, 2003). Of the 287 distributed questionnaires, 201 were returned, representing a response rate of 70%. Due to the self-administration approach and repeated visits by the individuals, there were no missing values in the collected data. Variables and measures This study employed the measures available in the existing literature to measure the variables of the study. Organizational performance measure was derived from the literature. However, the deployed measure used in this study is based on the adaption of the measure used by Narver and Slater (1990) and Jaworski and Kohli (1993) which was used to measure the performance and profitability in the SBU level of the organization. In addition to that, some items were also adapted from the work of Chan (2004), Fuentes-Fuentes (2004), and Kaplan and Norton (1993). The internal consistency of this measure was measured by Cronbach’s alpha as 0.893. However, the categorization and measurement of TQM practices has been a subject of debate among the researchers (Samson and Terziovski, 1999a). Originally, the Malcolm Baldrige National Quality Award (MBNQA) has been the most popular framework and used as a reliable measure of TQM (Curkovic et al., 2000; Lee et al., 2003). Based on reviewing the literature of quality management in the service sector organizations, some TQM factors have been commonly studied and investigated. Therefore, this study employed the measure of TQM used by Brah et al. (2000) to measure the TQM effectiveness in the service industry. However, the Cronbach’s alpha measure of reliability was found to be 0.904. The first scale developed to measure the entrepreneurial orientation (EO) was introduced by (Khandwalla, 1977) followed by
the five-item scale proposed by Miller and Friesen (1983). Later, extensive research has been done by many researchers to develop these measures such as the work of Covin and Slevin (1986, 1989) and Smart and Conant (1994). It was argued by George and Marino (2011) that the majority of studies on EO have used variations of the Covin and Slevin (1989) scale. Therefore, this study for the purpose of achieving its objectives has used the measure by Covin and Slevin (1989) since it best fits the purpose of this study. The internal consistency of EO measure was 0.660 which is acceptable according to Hair et al. (2010). Through the literature of organizational culture (OC), Denison theory of organizational culture (OC) has been very popular and commonly used to examine the performance implications of organizational culture (OC) (Denison, 1990, 2000; Denison et al., 2000; Denison and Mishra, 1995). Moreover, his theory has focused on four cultural traits namely, involvement, consistency, adaptability, and mission. However, Denison (2000) argued that these four cultural dimensions explain the organizational efforts to establish the balance between many contradictions in the environment in which the organization operates. To achieve the objectives of this study, the Denison’s (2000) was employed to collect the respondents’ opinions regarding the OC. The internal consistency of this OC measure was indicated to be 0.856 which is acceptable level.
RESULTS To test the hypotheses of the study, moderated regression using ordinary least square was employed. The adequacy of the model was confirmed by checking the regression assumptions such as linearity, normality, homoscedasticity, and error independence. In addition, the data revealed that the data had no issue of the multicollinearity and there were no outlier observations. The mean, standard deviation, and the correlations among the variables of the study are illustrated in Table 1 providing initial support of the model framework. As evidenced in Table 1, TQM, EO, and OC are significantly associated with the organizational performance at the 0.01 level of significance with the indicators (r=0.454, p
